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How iPhone’s pricing screws RIM

The rumours around Rogers pricing for Canadian data are certainly encouraging, and I’m as happy as the next guy at the reports that Rogers is finally going to drop its data rates to reasonable levels.  According to various reports, iPhone 3G data will be priced at the same levels as AT&T in the US: $30/month for consumer and $45/month for enterprise.  Crackberry.com is also reporting that Rogers will drop BlackBerry data prices, although perhaps not as much as for iPhone.

$30 for 300M, $50 for 500M and so on.  It presages the introduction of 3G Blackberries, because today it’s impossible to use 300M of data on Blackberry on the EDGE network.  BIS only, though.  BES subscribers will be stuck with the same pricing as before because “Neither Bell nor Telus BES customers have access to enhanced data offers which apply to the customer segment”.

So consumers win.  And I’ll bet Rogers wins as well as customers flock to the lower data rates for BlackBerry and the super cool iPhone.

The big loser in all of this is RIM.

About 20% of RIMs revenue comes from service fees and software licenses.  Every month, for every BlackBerry user, carriers send RIM approximately $6.  And enterprises send RIM several hundred million dollars per year in software licensing fees for the Blackberry Enterprise Server.  The number has been falling in recent years, but RIM still derives over a billion dollars in annual revenue from these fees.

Never mind the fact that, for enterprises,  RIM charges a per user license fee for the BlackBerry Enterprise Server; Rogers pricing makes it far more expensive, as an enterprise, to own BlackBerry than iPhone.  And for a carrier, RIMs $6/month fee for every user is a tax that doesn’t have to be paid for iPhone subscribers.

For me, Rogers pricing will likely mean the retirement of my BlackBerry. We have a BES.  iPhone with Exchange support will be more than adequate for email, and we won’t have to pay Rogers’ outrageous data rates for BES.

In order to compete with iPhone, RIM is going to have to take a 20% haircut on margins, and figure out how to make that difference up elsewhere.  They’re also going to have persuade their “partners” who subscribe to the doctrine of rational pricing that this is important. If they don’t or can’t, RIM’s high flying stock is going to take a nose dive very quickly.

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{ 4 comments… add one }

  • Aydin Mirzaee June 19, 2008, 6:42 pm

    good post… I have to say I was also disappointed to hear that the BlackBerry Bold had a small screen like the other versions and that the web browsing experience was still not nearly as good as the iPhone experience… I feel like I may have to retire the BlackBerry too… how sad :(

  • Kareem Sultan June 20, 2008, 4:37 am

    Nice post.

    I don't think this means every enterprise will all of sudden drop their blackberry's for iPhones. The two brands/products cater to completely different purposes.
    How long does it take to type an email in an iPhone? I imagine that's a show stopper if your phone is for business.

    This almost sounds like the claim that Linux was going to be the downfall of Windows on the enterprise desktop years ago.

    Bottom line, RIM's products are made for business. IPhones are made for fun. I doubt RIM will be hurting too much just yet, but it will be interesting to see where Apple heads with the IPhone.

    If they want to target business users the touchscreen keyboard needs to change.

  • Aydin Mirzaee June 20, 2008, 6:32 am

    Kareem, the touch screen really isn't all that bad… I've seen people type 60 words a minute on that screen… here's a video of some guy who types pretty fast… http://youtube.com/watch?v=CmhdUSlZ1LM
    I think it just takes getting used to…

  • Alec June 20, 2008, 6:36 am

    Hi Kareem,

    A couple of thoughts:

    First, RIM handset sales are growing 75% Y over Y while Software is in the 30% range. What that tells you is that their growth is coming from the consumer segment today. Apple seeks to cap that growth.

    Second, on the keyboard I used to be of the same opinion. Then my BlackBerry broke and I was forced to use iPhone for a while for email. I have found myself using iPhone for more and more of my email:

    1. I've learned to type with my thumbs on the touchscreen. It's as fast for me as typing on the Pearl, and only a little slower than the thumbpad on the curve.
    2. I've learned that most of what I do is read and file / delete, or type short replies, on my handheld. Again, iPhone is more than adequate.

    I don't think we're going to see a mass exodus by business to iPhone. I do think that boneheaded pricing moves, like the one that Rogers is making above, are detrimental to RIM and can only contribute to Apple's success in enterprise.

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